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CA Final · Direct Tax Laws & International Taxation · Non Resident Taxation

Zenith Software Pvt Ltd, an Indian company, plans to pay Rs 40,00,000 to a non-resident, Brightwave Inc., for services. Zenith believes only part of this sum is chargeable to tax in India under the Act read with the applicable DTAA. Under the Income-tax Rules, 2026 (Rule 214), what should Zenith do to deduct tax only on the appropriate proportion?

Zenith should apply in Form No. 129 to the Assessing Officer under Rule 214. The officer examines chargeability under the Act and the DTAA, determines the appropriate proportion of the sum chargeable, and issues a certificate on the basis of which tax is deducted.

  1. AApply in Form No. 129 to the Assessing Officer for a certificate determining the appropriate proportion of the sum chargeableCorrect
  2. BDeduct tax on the full sum and take no further action
  3. CAsk Brightwave Inc. to file a return and skip deduction of tax
  4. DApply in Form No. 129 to the Assessing Officer after the certificate period has expired

Explanation

Rule 214(1) requires the payer to apply in Form No. 129 for determination of the appropriate proportion of sum chargeable in the case of a non-resident recipient. Under Rule 214(2) the Assessing Officer determines the proportion where the whole sum is not chargeable and issues a certificate for tax deduction. Deducting tax on the full sum ignores this route; skipping deduction has no basis in the rule.

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